Exam 12: Investments

The equity method is in many ways a partial consolidation.

If Pop Company exercises significant influence over Son Company and owns 40% of its common stock, then Pop Company:

Cold Cat Inc., a snowmobile manufacturer, reported the following in its 20X5 annual report to shareholders: Trading securities consist of $54,608,000 and $41,707,000 invested in various corporate bonds at March 31, 20X5 and 20X4, respectively, while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 20X5. The unrealized holding gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity. Cold Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal and corporate bonds and are classified as follows at March 31: In its 20X4 annual report, Cold Cat disclosed, "The contractual maturities of available-for-sale debt securities at March 31, 20X4, are $3,573,000 within one year and $3,340,000 from one year through five years." -How much did Cold Cat actually receive from the sale of available-for-sale securities during 20X5?

On July 1, 2018, Silverwood Company purchased for cash 35% of the voting common stock of Yellowstone Corporation. Both companies have a December 31 fiscal year-end. Yellowstone Corporation, which is publicly traded on an organized stock exchange, reported its net income for the year to Silverwood and paid a dividend to Silverwood during the year. Required: How should Silverwood report the above information in its year-end income statement and balance sheet? Discuss the rationale for your answer.

The income statement reports changes in fair value for which type of investment securities?

Dicker Furriers purchased 1,000 bonds of Loose Corporation on January 10, 2017, for $800 per bond and classified the investment as securities available for sale. Loose's market value was $400 per bond on December 31, 2017, and the decline in value was viewed as temporary. As of December 31, 2018, Dicker still owned the Loose bonds whose market value had declined to $100 per share. The decline is due to a reason that's judged to be other than temporary. Dicker's December 31, 2018, balance sheet and the 2018 income statement would show the following:

When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition:

IFRS No. 9 is a standard that indicates accounting for investments when the investor does not have significant influence under the investee. Required: Explain how debt investments are accounted for under IFRS No. 9. What alternative accounting approaches are available, what determines whether an investment qualifies for each approach, and what are the key features of each approach with respect to accounting for unrealized holding gains and losses?

Trading securities are most commonly found on the books of:

When the investor's level of influence changes, it may be necessary to change from the equity method to another method. When the level of ownership falls from a range of 20% to 50% to less than 20%, the equity method typically would be discontinued and the investment account balance would be carried over at:

When available-for-sale securities are sold, the amount of unrealized holding gain or loss realized from the date of purchase is included in before-tax net income.

Fragrance International, a large perfume manufacturer, reported the following in its 2018 annual report to shareholders: ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated other comprehensive income (loss) ("AOCI") included in the accompanying consolidated balance sheets consist of the following: -What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2018? Assume a 40% tax rate.

Hobson Company bought the securities listed below during 2017. These securities were classified as trading securities. In its December 31, 2017, income statement Hobson reported a net unrealized holding loss of $13,000 on these securities. Pertinent data at the end of June, 2018 is as follows: What amount of unrealized holding loss on these securities should Hobson include in its income statement for the six months ended June 30, 2018?

All investments in debt securities whose fair values are not readily determinable are carried at historical cost.

IFRS No. 9 is a standard that indicates accounting for investments when the investor does not have significant influence over the investee. Required: Explain how equity investments are accounted for under IFRS No. 9. What alternative accounting approaches are available, what determines whether an investment qualifies for each approach, and what are the key features of each approach with respect to accounting for unrealized holding gains and losses?

On January 1, 2018, Hoosier Company purchased $930,000 of 10% bonds at face value. The bond market value was $980,000 on December 31, 2018. Required: Prepare the appropriate journal entry on December 31, 2018, to properly value the bonds assuming the bonds are classified as: (1.) Trading securities. (2.) Securities available for sale. (3.) Held-to-maturity securities.

Cold Cat Inc., a snowmobile manufacturer, reported the following in its 20X5 annual report to shareholders: Trading securities consist of $54,608,000 and $41,707,000 invested in various corporate bonds at March 31, 20X5 and 20X4, respectively, while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 20X5. The unrealized holding gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity. Cold Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal and corporate bonds and are classified as follows at March 31: In its 20X4 annual report, Cold Cat disclosed, "The contractual maturities of available-for-sale debt securities at March 31, 20X4, are $3,573,000 within one year and $3,340,000 from one year through five years." -Assume Cold Cat did not purchase any trading securities during 20X5. Prepare a journal entry to record any unrealized holding gains or losses on trading securities during 20X5.

Cold Cat Inc., a snowmobile manufacturer, reported the following in its 20X5 annual report to shareholders: Trading securities consist of $54,608,000 and $41,707,000 invested in various corporate bonds at March 31, 20X5 and 20X4, respectively, while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 20X5. The unrealized holding gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity. Cold Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: NOTE B - SHORT-TERM INVESTMENTS Short-term investments consist primarily of a diversified portfolio of municipal and corporate bonds and are classified as follows at March 31: In its 20X4 annual report, Cold Cat disclosed, "The contractual maturities of available-for-sale debt securities at March 31, 20X4, are $3,573,000 within one year and $3,340,000 from one year through five years." -What gain or loss would be realized if the available for sale securities on Cold Cat's 3/31/X5 balance sheet were sold immediately for their fair value? Prepare any reclassification entry and an entry that would record the sale (ignore taxes).

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Both debt and equity securities can be categorized as trading securities.